It’s hard to not to like Craig Parry, CEO of IsoEnergy. He’s a laid back Australian with a laconic drawl, who has been living in Canada for long enough to consider it home. He cut his teeth in the uranium mining space on the Board of NexGen, one of the better junior Uranium stories in what has otherwise been a spectacularly depressed mining vertical for the last few years. We’ve spoken to Parry a few times about his plans to develop IsoEnergy (TSX: ISO). He claims his plan is simple. Drill holes in a target rich environment and work out what you’ve got. In fact he was keen to labour that point in our interview .
This potentially leaves investors struggling to work out how IsoEnergy is different from all the other junior uranium miners saying exactly the same thing, but we’re not sure Parry is particularly phased by that. The reason for this is that he has a huge institutional following, not least of all a c.50% equity stake by NexGen, who continue to follow their money. Retail shareholders represent about 15%, but don’t seem that interested. Chatrooms and forums are all quiet. We found one lone retail commentator who, a bit like us, was wondering where everybody was. The thing about most junior miners is that retail investors are very good at holding the company Directors to account and constant questioning of decision making. Looks like IsoEnergy shareholders, like a lot of Uranium shareholders, are exhausted. Good news for the management team, not so good for liquidity and volume of trading.
For those of you new to Uranium equities as an investment thesis, and to keep it simple, here is the Uranium Demand / Supply story in a nutshell. Currently, nuclear energy is commercially the cheapest, Zero carbon energy source on the planet (1), end of lifeNuclear reactors apart. There are billions and billions of dollars of new, longer life nuclear reactors being built, large and small, in multiple jurisdictions, and they will all need uranium products as the basis of that energy production. WATCH our interview with Mike Alkin who nicely summarises the macro story or indeed any of our interviews on our YouTube channel . The Supply side is relatively complicated. The two main suppliers to the market Camaco (Canada) and KazAtomProm (Kazakhstan) have the highest-grade and largest-resource available, and even they have had to reduce production as the spot price has been between $20-$25 for the past couple of years, so they are losing money mining for uranium. Most Uranium producers need $50-$60 to mine economically, and obviously would prefer prices even higher than that. As I said, the issues on the supply is multifaceted and the subject for another article. It’s a small, $10Bn, market but evokes high emotion.
As a commodity and as an equity Uranium has been stagnant since Fukushima Daiichi in 2011. We all know it, and until the buyers, the Utility companies, come back into the market for new material, rather than relying on their stockpiles, not much is going to change. This interesting to note, but none of this is relevant to IsoEnergy yet as it is nowhere near a producing asset. That is easily 5-10 years away. And as an investor this is important to note, because the management need to tell us if and how they are going to make shareholders money in the next 5-10 years.
We were keen to know where Parry sees IsoEnergy in the Uranium cycle and indeed if there is a business plan. Not sure we got much clarity on either point and maybe they just don’t want to comment on the cycle as they don’t actually know what they have yet. Fair enough. What I do have a problem with is not being able to clearly articulate a business plan. What are investors buying in to? What exactly is this quite senior Board of Executives, who are well paid, planning to do with the business? Are they setting themselves up as the exploration arm of NexGen; is NexGen viewing them as purely an equity investment which they will cash in on when the need is there or time is right; or has IsoEnergy got plans to acquire more land packages in and around the Athabasca basin. What is the strategy and who is going to deliver and fund all of the above?
IsoEnergy recently raised around CAD$6.7M, of which CA$3.5 was flow-through dollars to support exploration programs for the “next six months.” The remaining CAD$3.2M “hard dollars” was provided mainly (CAD$2.9M) by NexGen Energy, a sizeable Uranium Development company also based in Vancouver. Is that long enough for price discovery in the market? We don’t think so. Both companies share some of the same board members and NexGen holds about 50% of the IsoEnergy. IsoEnergy has managed to raise capital “relatively” easily says Parry, which is of some comfort especially of you look at the institutional holders of the stock: something many uranium juniors struggle with, but it’s now a matter of what they actually do with it.
IsoEnergy has options. We ask Parry what he is going to focus on. Parry is confident of the quality of the asset, and claims their upcoming “aggressive” drill program is likely to provide positive results, thus growing the company. IsoEnergy’s assets are based in a prolific uranium region, in a highly stable mining region, but is this doesn’t mean it is going to work. A lot of hard work need between now and then.
One thing is for sure Parry seems quite relaxed. We’re not sure how to read that, but that is all we have to go on for now. Not enough data to analyse or do meaningful diligence on. For us this is a watch and see scenario. IsoEnergy is lucky the institutions seem to be valuing their Board members from NexGen and the company’s Athabasca basin focus. It is certainly not based on the amount of data gathered.
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